The Absolute Return Letter - September 2009: The Hamster on the Wheel – by Niels C. Jensen
It is not universally appreciated, but the last 25-30 years have, in general, been staggeringly good to most investors. Technology induced productivity enhancements combined with favourable demographic trends, minimal government involvement, accommodating labour unions and the globalisation of international trade have all contributed to a benign inflationary environment and strong economic growth, leading to arguably the biggest bull market of all times in both bonds and equities.
So much for the good news. The long lasting tail winds have finally turned around, and we now face, and will most likely continue to face, head winds for years to come. The list is long, but some of the most important factors contributing to this change include…..
…..
In a series of articles over the next few months I will tackle these issues one by one, as they are all critically important. I open this month with an essay on oil. In March 2004, when crude oil was trading just below $30, I predicted $100 prices within the next decade. Please note I made that prediction way before Goldman Sachs made the same projection, for which they got the whole world to sit up and listen. Before I get too carried away, though, it should not be forgotten that Woody Brock, our economic adviser, inspired me to make the $100 projection back in 2004. Likewise, new research from Woody has inspired me to write this month’s letter.
…..
Maybe the day is not that far away where oil producing nations – with their arms appropriately twisted behind their backs - agree to prices being regulated with oil and gas exchanges closed across the world so that investors can no longer speculate on the future course of energy prices. An extreme outcome? Not if you believe, as more and more experts do, that Peak Oil is now only a few years away and that the rate of decline on the other side of the peak will be quite steep.
Meanwhile, oil producers remind me of the poor little hamster on the wheel, spinning its tiny legs as fast as it possibly can just to keep up. There is only one problem – the hamster is getting tired - to the point of exhaustion. See for your self what happens next:
- Roumell Q2 2013 Letter: Price Trumps Economic Forecasting
Price Trumps Economic Forecasting In July 2009, the very popular macroeconomic investment strategist Marc Faber predicted that the United States was about to enter a period of hyperinflation approaching the levels of Zimbabwe. PIMCO’s Bill Gross in...
- Bridgewater Takes Grim View Of 2012
Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view. Robert Prince, co-chief investment officer...
- Hussman Weekly Market Comment: Misquoting Keynes
The famous quote attributed to John Maynard Keynes - "the market can remain irrational longer than you can remain solvent" - is a favorite of speculators here. Actually, I very much agree with this observation, provided that it is correctly understood....
- Advisor Perspectives: Au Revoir Jean-marie Eveillard: A Final Interview
Which worries you more – a decline in the dollar, rapid inflation, or deflation? How are you positioning your portfolio to defend against these scenarios? We have many worries, but we are not positioned against any particular outcome. Our top-down...
- This Too Shall Pass: Investment In The Integrated Oil Majors
There's been plenty written already about the decline in oil prices over the last 9 months or so. The per barrel price of oil has declined from $98.70 in June 2014 to $51.77 as of Friday's close. That's a 47.5% decline from the peak last year....